Mission-oriented industrial strategy in the Burnham era

There are lots of good ideas that never make it out of research institutes and universities. Sometimes, they just don’t scale very well in the real world. Sometimes, they are wonderful in the lab but in the hands of non-experts rendered too technically complex or cumbersome for everyday use. Sometimes, and most tragically, there are genuinely world beating bits of research that have no market to make them viable in the real world.

There are often headlines about drug companies whose products are too expensive for the general population. Innovations in clean energy whose planet saving potential cannot be deployed due to a balance sheet in some company somewhere or other. And anyone who has worked in a tech business will have seen gigabytes of products filed away that lack the investment to move from start-up to scale-up.

The benefit of a market is that it acts as an idea validation mechanism. If an idea is both good, or at least has the potential to generate a surplus, it should be able to find a buyer that can deploy that idea in the real-world. The alternative would be for the state to make agreements with firms and research institutes on what they will produce. These kinds of planning agreements across sectors and firms have a decidedly mixed history.

This leaves an obvious contradiction. The state is often ill-equipped to make judgements about research quality, product viability, or market appetites, at the levels of firms and sectors. The market rewards surplus creation (often on short time-scales) meaning good but economically inefficient, risky, or genuinely innovative ideas where no market yet exists, cannot be forced into existence.

Mariana Mazzucato, Anna Pick, and Anna Hope Emerson have produced a new report for UCL’s Institute for Innovation and Public Purpose which plots a path toward a more innovative economy that leverages the coordinating capacity of the state and the dynamism of the market. The publication – Coordinating and Scaling the UK’s Public Finance Bodies to Support Mission-Oriented Industrial Strategy – is ostensibly about the coordination of public finances bodies to create economic growth. However, it reveals broader truths about the short-comings of how the innovation economy is organised.

The central thrust of the report is that the market is an imperfect arbiter of good and bad ideas. It functions with imperfect information, a short-term view, and the wider capitalisation of the UK means surpluses often flow to shareholders not back into the real economy to be used for achieving bigger goals. This means that the market is not just a demand signal but it actively shapes the conditions of what is valued, bought, and deployed in the real world.

The authors make the case that firms can be encouraged to organise their work around social ambitions like building resilient cities, or climate change, or any other number of things, where the state is clear about the long-term goals it is trying to achieve. This is the “missions” approach loved by Keir Starmer – and ambiguous under Andy Burnham. Once the state is clear about what it wants it can then deploy tools like regulation, tax, public finances, and procurement, to achieve its goals. The market is still central to building an innovation economy but the state has a stronger hand in guiding what the market does.

The report references the House of Lords Communications and Digital Committee’s warning the UK risks becoming an “incubator economy” if it cannot scale-up its most promising start-ups. The answer for Mazzucato et al is not simply adding more capital into the system, but reorganising the system itself: “from mobilising external capital and filling market gaps towards shaping markets around shared objectives.” There are lots of tools to achieve this aim but two stand out.

The first is that the National Wealth Fund should institute a “deal hub” which would “help design and structure investments in collaboration with stakeholders, and not simply rely on proposals brought by the private sector.” In effect, government (including devolved and regional governments) would act earlier in the market to bring ideas into fruition and set them on pathways to attract further investment. The second is the proposed use of “other transaction authorities,” borrowed from the US, which would allow the government to work outside of procurement rules to rapidly fund organisations where there is a focus on R&D, prototyping, or follow-on technologies.

The issue with missions was not that it was not a good idea – but that they were poorly articulated by a political leadership that did not survive long enough to deliver them. The idea of coordinating disparate activity, using public funds to shape markets toward social good, and using the state as a funder of first resort, is a well understood proposition, made relevant by the urgency of a slow and faltering economy. If Andy Burnham is serious about re-wiring the state he could do worse than start here.